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- A strong savings goal has a clear purpose, dollar amount, and deadline.
- If you're struggling to make progress toward a goal, break it into smaller tasks.
- High-yield savings accounts and CDs are ideal for short-term saving goals.
Nearly all effective saving strategies require setting clear and realistic goals. That means identifying a timeline, amount, and purpose for each goal, rather than simply saving for the sake of it.
Understanding savings goals
What are savings goals?
Savings goals are financial targets that you want to achieve in the near or distant future. For example, retirement is a common savings goal among Americans. In order to retire comfortably by their 60s, most people need to consistently squirrel away money in an investment account that grows over time.
The importance of setting savings goals
Without savings goals, you run the risk of being underprepared for a big purchase or phase of life. You may need to take on debt or ask family members for money.
An ideal savings goal is measurable, time-related, and specific, says Christopher Stroup, a CFP professional at Abacus Wealth Partners.
"A bad goal would be, 'I want to save more.' That's opaque and something you can't anchor or track yourself," says Stroup. "A better goal would be more specific, like, 'I want to save $3,000 to my emergency reserve over the next six months.'"
Types of savings goals
Short-term savings goals
These are goals with a time horizon of one year or less. The most important short-term savings goal, according to financial experts, is building an emergency fund.
An emergency fund is three to six months' worth of expenses that you can dip into at any time to cover unexpected bills or expenses. Without this type of financial safety net, you could derail your short-term and long-term goals.
Medium-term savings goals
Medium-term savings goals are usually between one and three years, but sometimes stretch up to five years. Common examples include saving for vacations, a new car, or a house down payment.
Long-term savings goals
Retirement is the most common long-term savings goal for most people, but those with kids may also want to save for college. When you have competing long-term savings goals, it may be helpful to consult a financial planner who can help you prioritize and strategize about where and how to save.
Steps to set effective savings goals
1. Have a clear purpose for saving money
Know why you're saving money. Is it for a vacation, your holiday budget, or a down payment on a home?
Patrina Dixon, founder and CEO of It'$ My Money, says setting a clear purpose may bring more awareness to how your discretionary spending impacts your savings.
"If you know you're saving to go on vacation, as an example, then have a picture of that. When you think about spending, you may look at that picture and realize, 'If I buy this item, then it's going to take me longer to save what I need to go on vacation,'" says Dixon.
2. Attach a dollar amount to your goal
Figure out the total amount of money you'll need to save to reach your goal.
For example, if it's for a vacation, calculate the expenses for the trip, such as plane tickets, hotels, activities, and food.
If you're setting up an emergency fund, calculate your monthly expenses and multiply the total by three to get your minimum savings goal.
"I think it's important to understand what the absolute amount is that you need to be saving before you can build the pieces from there," explains Stroup.
3. Set a deadline for your goal
Establish a date for when you want to achieve your goal. This will help you work backwards to determine how much to save each month, or even each week, to reach the target.
Once you've established your savings goal, consider the following tips for maintaining and executing it.
Tips for achieving your savings goals
Automate your savings
Both Stroup and Dixon recommend setting up automatic transfers from your paycheck to a savings account. Implementing this strategy allows you to prioritize your savings goal before other expenses. It also ensures you're making contributions regularly.
Track your progress
Check in regularly to see your savings progress. Some savings accounts have bucketing features that allow you to create individual accounts and see your progress on that specific goal.
If you're maintaining all of your savings in one account, you could also use a budgeting app to track your progress.
In some instances, you might not be able to save as much money as anticipated — that's fine. When this happens, analyze your spending and readjust your budget. Try placing a spending limit on an area where you think you could cut back.
Break your goal into smaller tasks
Some goals may be easier to save for than others. If you're saving for a large expense or establishing an emergency fund, Stroup recommends breaking your goal into smaller goals.
For example, let's say you want to save a total of $20,000 in an emergency fund. You could break down your goal into stages. Start by trying to save $4,000 in a year. Once you've saved $4,000, you could then aim to save a total of $8,000 in the next year, and so forth, until you reach an emergency fund of $20,000.
In all, having a clearly defined reason for saving money and a plan of execution can go a long way toward achieving your financial goals. If you're struggling to meet a saving goal, ask yourself if you can adjust your strategy to increase your chances of success.
Explore interest-earning bank accounts
Finding the right place to save money may help you achieve your goals. Stroup says high-yield savings accounts, CDs, and money market accounts could be good options for short-term goals since they are safe, interest-earning bank accounts.
The best high-yield savings accounts, CDs, and money market accounts pay high rates with minimal fees and are federally insured. This means that if the institution fails, up to $250,000 per depositor, per ownership category is protected.
If you have a longer time horizon for your goal and are comfortable taking risks, Stroup says you might consider investing instead of saving.
Savings goals FAQs
Common savings goals include emergency funds, vacations, down payments for homes and cars, and retirement. Each goal will have a different timeline, altering how much you should be saving.
If your goal is to save $5,000 for a car down payment in one year, for example, you will need to work backwards to figure out your monthly savings target. Divide $5,000 by 12 months and you need to save about $417 per month.
Budgeting apps,personal finance software, and spreadsheets can help you keep track of your progress toward various saving goals. Some banks have bucketing features on savings accounts that allow you to separate money for different goals.
Aim to set clear, realistic goals and consider breaking down large goals into bite-sized ones. For instance, instead of having a goal to save $1,000 in six months, focus on saving $200 a month for the next three months, and then reevaluate.
There are savings apps, budgeting apps, and bank accounts that can help you save more and keep your savings separate from your everyday spending money so you're not tempted to spend it.
